The election is now behind us, so its time to get down to the business of making money. The October low occurred on schedule, as did a rally one week before the actual vote. So what should investors be looking at?

Over the past week, the Nasdaq, Dow and S&P500 have all broken their 2004 downtrend, a very bullish sign. We had mentioned Nasdaq 1981, SPX 1140, and Dow 10,250 as our launching pads, and those levels did not disappoint. With the Wall Street friendly incumbent winning the election, we see no reason not to expect the usual seasonality, lasting from November to sometime in the second quarter of 2005.

Short term, several factors point to an overbought market: The percentage of S&P 500 issues at 30-day highs looks quite toppy (see chart nearby[1]), as do the SPX and NYSE A/D line (now at 52 week highs). Longstanding resistance on the SPX is at the post 9/11 top, just under 1175; The Nasdaq also looks extended here. The market needs to digest its gains further before starting the next leg up.

A question I like to ask myself at this cycle juncture is this: “What are fund managers afraid of?” As the post-election euphoria fades, there certainly are enough issues to worry about: The weak dollar, Iraq, the yawning trade deficit, the inevitability of rising interest rates, the Federal deficit, to name but a few.

While all of the previously mentioned fundamental negatives are of some concern to the professional money manager, they are not the dominant fear. Quite to the contrary, the big worry is missing the rally and under-performing.

That is why the Bears have been unable to put together a serious sell-off since the rally began 10 days ago. Profit taking has been minimal. There is plenty of cash on the sidelines, and a somewhat under-invested hedge fund community. That, combined with short covering, is providing a firm bid under the market.

This leads us to the conclusion that any consolidation or backing and filling over the next week should be aggressively bought. We’d consider it a blessing in disguise if a major negative were to occur (Calling Eliot Spitzer!) to allow better entries on any of the major averages.

The levels we mentioned above are your stop losses. We offer the same caveat as we have previously – a tradable peak is likely in the first half of ‘05.